Earnings preview: Expect another impressive show from Five Below in Q2

Five Below, Inc. (Nasdaq: FIVE) has been maintaining financial stability over the years, consistently recording solid growth in quarterly profits and revenues that mostly topped expectations. The specialty clothing retailer will be publishing its July-quarter results on August 28 at 4:00 PM ET.

As the name suggests, Five Below’s main strength is its pricing strategy which attracts all types of customers to the stores. That, together with the company’s aggressive e-commerce push and expanding assortment, has helped it maintain the growth momentum with positive comparable store sales.

In a sign that the changes in the retrial landscape, marked by the growing popularity of online shopping, had a relatively small impact on the company, its store traffic remained stable in the recent past. 

Bullish Outlook

It is expected that once again these factors will help the company come up with impressive top-line numbers for the second quarter. A review by Wall Street analysts shows that earnings will likely grow 11% annually to $0.50 per share. The forecast for revenue is $421.35 million, up 21% year-over-year. The estimate matches the outlook earlier issued by the management, which also sees 2-3% comparable sales growth.

Also see: Urban Outfitters stock gains as Q2 earnings beat

Going by the recent trend, high volumes and the revamped merchandise range could drive margin growth in the three months ended July. The favorable cost structure will also contribute to the bottom-line. During the last conference call, the management had revealed plans to open 125 new stores during the remainder of the year.

Expense Woes

While the expansion program points to the positive growth prospects going forward, it comes at a price. In the first quarter, selling, general & administrative expenses rose by 32%. The trend will likely continue in the to-be-reported quarter, restricting earnings growth to some extent.

Q1 Outcome

In the April-quarter, Five Below expanded its store network aggressively, adding 39 new units. Earnings and revenues grew in double digits to $0.46 per share and $365 million respectively. The results also topped the Street view. After opening a distribution center in Southeast, the management is currently planning to open another in Southwest next year.

Related: Five Below Q1 2019 Earnings Conference Call Transcript

Shares of Five Below dipped about 20% after hitting a record high in April. Currently, the stock is trading near $115, close to the levels seen at the beginning of the year.

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